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Despite GDP Growth, Philippine Risks Credit Rise

The Philippine economy has built “buffers” against global risks, with high foreign exchange reserves and low public debt levels, an analyst said Friday.

The country, however is “not immune” from rising borrowing costs across the globe, said Fitch Ratings head of sovereigns in the Asia Pacific Stephen Schwartz, ABC reported.

“The risk for the Philippines is credit growth. It has been very high in the domestic economy,” Schwartz told ANC’s Market Edge.

Higher interest rates, coupled with the strength of the dollar, could increase debt servicing costs for the government and companies as most of borrowings are denominated in the US currency, he said.

“On the back of a stronger-than-expected real GDP growth performance in the first quarter of 2018, we have raised our real GDP growth forecast for 2018 to 6.5%, from 6.3% previously,” BMI said.

It said the growth acceleration from the revised 6.5% in the fourth quarter was mainly driven by strong fixed capital formation, particularly in the construction sector that was supported by the government’s massive infrastructure program.

“This was slightly different from 2017 when growth was largely driven by the ongoing global economic recovery, which raised the demand for Philippine exports,” it said.

Even as the Philippines continue to enjoy positive demographics, the Fitch unit said the economy is showing signs of overheating and the deterioration in the business environment would weigh on private investment.

Amid the expected slowdown, BMI said President Duterte’s expansionary fiscal policy would continue to provide support to an above 6% headline GDP growth in the coming quarters.

BMI said another major economic growth theme in the Philippines is the positive demographics that would continue to support the development of the labor-intensive business process outsourcing and manufacturing industries, as well as the retail and consumer goods sectors.

It added the peso has been one of the worst performing currencies in the region year-to-date, and likewise for the benchmark Philippine Stock Exchange index.

BMI said inflation would remain an issue over the coming months even if the Bangko Sentral ng Pilipinas raised benchmark rates by 25 basis points last May 10 as inflation rose to a fresh five-year high of 4.5% in April from 4.3% in March.